General Motors Company (GM) Traders Eye Additional Downside


General Motors Company (NYSE:GM) puts traded at a slightly faster-than-usual pace yesterday, as the automaker’s shares continued to struggle — losing another 1.3% to finish at $34.45 — following last week’s disappointing turn in the earnings confessional. By session’s end, 37,000 puts were on the tape, compared to 33,000 calls. What’s more, GM’s 30-day at-the-money implied volatility edged 0.5% higher to 22.1%, indicating a modest uptick in demand for short-term contracts.

One of the most active strikes in GM’s options pits was the out-of-the-money August 32 put, where roughly 5,200 contracts were exchanged. Over three-quarters traded at the ask price, and open interest spiked more than any other strike overnight, collectively suggesting the puts were bought to open at a volume-weighted average price (VWAP) of $0.13. Data from the International Securities Exchange (ISE) likewise confirms some buy-to-open activity.

In a nutshell, the traders expect GM shares to finish below $31.87 (strike less VWAP) by the close on Friday, Aug. 15, when the front-month options expire. Additional profits will accrue on a move all the way down to zero, while potential losses are capped at the initial premium paid, should the shares be resting above the strike at expiration.

On the fundamental front, it’s been a tough year for General Motors Company (NYSE:GM), given all of the recall-related news. Yesterday, however, the automaker announced it will launch its newest line of full-size pickups nine months earlier than expected.


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